Every company seeks better results from their spare parts inventory investment. After all this inventory is the life-blood of their maintenance and reliability functions.
The problem is that the definition of what any one person thinks constitutes ‘better results’ can vary depending upon their functional focus. This is the essence of organizational misalignment.
Organizational Misalignment is the Driver of The Spare Parts Management Tension
The maintenance and reliability team will know better than anyone the impact that a shortage of spare parts has on the business. No spare often equals no production and so there is sometimes an attitude of ‘the more the merrier’.
But what about working capital? Often companies have far too much money tied up in their spare parts inventory.
This can be expenditure that does not provide any real value to the company because many of the parts purchased will be obsolete before they can be used. That is not to say that they don’t need the type of spare but maybe they don’t need as many as they stock, or maybe there is a better way to access what they need, when they need it.
These dynamics result in significant tension in the management of spare parts inventory (if not sometimes actual conflict!).
Typically, it is the maintenance and reliability people that want more stock on hand and the accountants that want to minimize the investment. Maintenance and reliability people will see the accountants as short-sighted, aiming to save a dollar today in a way that costs five dollars tomorrow. From the other side, accountants may see the maintenance and reliability team as profligate spenders with little or no accountability.
Spare Parts Management and Organizational Misalignment
One of the reasons that this divide occurs is that spare parts inventory management can sometimes ‘fall between the cracks’ of the organizational structure.
This results in the goals of the people managing the spare parts not being aligned with the goals of those using the spare parts while also not aligning with the company’s cash management goals.
The reality is that spare parts management requires a simultaneous understanding of the engineering and maintenance requirements, supply chain management, commercial negotiation, and financial investment.
In my opinion, when spare parts are managed from the perspective of just one of these functions, then the organizational misalignment of responsibilities is the number one reason why companies hold more inventory than they really need.
That is, the level of inventory that is held is almost always a function of who is responsible for determining what should be held and who is responsible for the level of investment. Here are some examples that may be familiar from your experience:
- Where the functional driver is procurement, the focus will be on lowest unit cost and economic order quantities
- Where the functional driver is maintenance and reliability, the focus will be on the instant availability of every possible spare
- Where the functional driver is supply chain management, the focus will be on ‘slicing and dicing’ data (and don’t get me started on the validity of the data!)
- Where the functional driver is financial management, the focus will be on minimal investment
Each function can make a valid argument for their perspective but the best results are achieved with balance.
The motivation to take a particular perspective or point of view is not driven by any malice or poor intent, it is driven by the basic human nature that seeks to maximize our personally measured outcomes. Engineers responsible for keeping a factory producing are unlikely to reduce inventory if they are not accountable for the dollar value held.
Similarly, an ‘accounting only’ approach can result in removing slow moving items that, from an engineering perspective, are still required and are held as insurance spares.
Does It Matter Where Spare Parts Management Reports?
It is only by aligning the appropriate responsibilities and authorities that a genuine focus on inventory management can be maintained.
Improved spare parts inventory management can result in reduced working capital, increased spare parts availability, reduced downtime, and even all three. But to achieve this you need to have all the functions ‘pulling in the same direction’. You just cannot underestimate the impact of misalignment in the organization of spare parts management.
The good news is that, in my experience, it doesn’t matter through which function spare parts management reports. What matters is that the focus is on managing spare parts to achieve all the company’s goals, not just the goals of a functionally focussed group.
This highlights one other issue that results from organizational misalignment in large companies: investing spare parts management knowledge in just one (or a few) individuals.
Limiting the real know-how to one or two people makes it almost impossible to execute widespread improvement and achieve the balance needed. Larger firms need multiple personnel, from different disciplines, to be involved so that they can realize the benefits of standardization, develop a common language, and engage in continuous improvement.
A Company-Wide Approach Is Required to Achieve ‘Better Results’
Companies with many locations need people at each location to be trained in the complexities of spare parts management. Having a single ‘global manager’ or a small corporate group charged with implementing change, without supporting that through local training, just does not deliver the level of results that are possible.
Companies that operate on a fly-in, fly-out basis, with back-to-back operators, especially need to ensure that everyone is ‘in the loop’ if they are to achieve consistency of outcomes. Few things are more frustrating than having the work of one crew undone by the next crew!
A company-wide approach to spare parts inventory management requires a company-wide approach to systems and training. It is only by ensuring continuous and wide-spread access to both information and training that companies can achieve the right balance with their spare parts inventory management. This is how they can realize the seemingly exclusive aims of lower inventory and greater parts availability.
Author: Phillip Slater